Deal #1(San Antonio): Bankruptcy FMV-$85K You are going to have to get the court’s OK to get the deed as they will ask why not sell it at a higher value to help satisfy other creditors.
Deal #3(San Antonio): In Default FMV-$95K Loan Balance-$75K 8 months behind. Lender will reinstate loan with $10K payment and will reduce balance by $10K. This is not rational to me. They owe 10K in unpaid payments(mainly interest) If you can get them to reduce the principal balance by the 10K you have truly got a good deal.
Boy do we need advise. Wouldn’t ya know, first call we got on our “We Buy and Lease Houses” ad that actually wanted to know if we could discuss leasing their house instead of people who are looking to lease (we have none as of yet for l/o) and it just scared the Bejesus out of me. I don’t know if were way out of our league here being brand spankin new at this. Heres the poop.
One owner (no spouse) will be going into foreclosure soon.
House was bought in 1994 for $300,000. She just had it appraised at $330,000. She has a first mortgage of $260,000 payment of $2872 per mt. and a 2nd. mort. for $70,000 with a payment of $989.00 for a total of $3861 per month (Yikes) She is behind 4 payments for a grand total of $15,444. (double Yikes) Home is in a neighborhood of houses in the same price range and higher. It is a 3000 sq. ft. brick and frame with 4 bed. 2-1/2 bath needing minor cosmetic repairs. I was stumpling like a fool and made an appointment to go there Sunday to talk.
Seeing she is so behind in payments are we out of the ballpark here? There is no way I can guarantee her payments if the house does not rent in the time frame we put in the contract. Is there something to put in the contract that says WHEN we find a buyer? Should we go out there Sunday just for the experience and just chalk this one up? Please help. Any and all advise or suggestions would be greatly appreciated. Thank you all so much.
Re: All Wise One’s PLEASE HELP US!!!L/O - Posted by Bill Gatten
Posted by Bill Gatten on April 17, 1999 at 17:39:38:
Robjan,
How much of the monthly payment would she be willing to contribute in order to save herself from major debt-relief taxes on a Foreclosure or and Offer in Compromise, were she to have to walk away?
Even if she tried to lease or Lease Option the property, the payments are so high that her negative cash flow (not to mention maintenance, management and vacancy factors) would ingest her and hock her up in chunks (as it were). She’d be at least $1,500 upside-down monthly (considering Neg CF, plus 1.0% mtce, and 1-2 payments per-year for vacancy budgeting).
Quite candidly, the following is what I do when I see these (and I usually make a buck or two in the process):
Go to the seller, and instead of trying to figure out a way to help yourself: offer to sit down comfortably with no obligation or pressure on your part, and show her a way she can help herself, with your assistance and escape a major problem.
Get her agreement to contribute enough monthly to bring the PITI down to no more than 0.9% of the property’s current value, pointing out that there will be no management, maintenance, upkeep or vacancy (landlord) costs. In other words, she should cover most, if not ALL, of the 2nd TD (after all, she spent the money on herself… why should a buyer of her home have to pay her Mercedes payment… or the payments on her boat or airplane… or her $70K debt consolidation?)
Give her a $100 Option Fee to purchase the house… in, say, a month.
Run a newspaper ad that says: Why Rent? Enjoy the Benefits of Ownership. No Bank Qual. Ten- percent total moves you in. Immac. $335,000 4+3, only $2500 p.mo,+tax and ins.
When they call, and they will (“Build it, they will come”), you say: "Ah yes, we have this beautiful home over there in… with payments of about $2,900 per month, and I’m looking for someone who can afford the up front amount and the payments… to basically just give it to. (pause) The only thing I want out of it is to have you either sell it or refinance in a couple years and pay off the existing loan and give me back the little bit of equity I have in it now. (pause) Then, if there’s BEEN any appreciation by that time… I’d like to split it with you.
Now, when the right person steps up, you then exercise your option by having the owner place the property into her own land trust (in her own name) and naming you and your “buyer” as 2nd and 3rd beneficiaries.
Your agreement with the 1st and 3rd Bene. (seller and your buyer) is that they will make all the payments, and that you will merely participate in the proceeds of disposition at the termination of the trust: e.g., 10% benef. interest stays with the seller to be forfeited to you at termination; forty- percent goes to you; and fifty- percent goes to the 3rd bene.
Voting rights (power of direction) are 50:50 between you and the 3rd benef.: the 1st benef. having given you her full directive powers).
It’s not complicated. It helps everyone. And YOU just bought yourself a legally shielded income property with no down, no qualifying, no credit risk, no DOS violation, no taxable transfer and no payments. You didn’t get a pos. CF; but you got a pretty good chunk up front and a lot (hopefully) at the back end. The only cash out of pocket was the newspaper ad, and the seller should have paid for that!
Bill
If I can help, call me or e-mail me… I’m always happy to conference with prospects CRE folks (be they newbies or old fogies, like myself).
My take on this is that a deal can possibly be made. As far as the payments go you don’t mention if they include taxes. If you are in an area where taxes are extremely high then the payments could be normal and expected for the area.
If the deal is done properly you will take no risk at all.
Make sure the seller knows that you have NO INTENTIONS of guaranteeing the payments. Let them know that you will not make any payments until you find a tenant buyer.
Have the seller deed the property over to you (at this point you own the home). Be sure to take it in a land trust or corporation. Get a title search to make sure there are no additional liens on the property. If not advertise the home for $360,000 No qualifying with $30,000 down. When a buyer comes along, anything they have over $15444 take it. Have them give you a note for whatever they don’t have up to the $30,000. Hopefully they will have $30,000 in cash. Then just walk away. Don’t try to make a monthly spread. Simply put the deal in someone elses hands. Try to get a hold of some CYA letters and cover your self on both ends.
If you do it this way you can’t lose. It may not work but it won’t hurt.
Here’s an idea that may work - Posted by SteveS(CPA)
Posted by SteveS(CPA) on April 17, 1999 at 01:21:13:
I haven’t been on this site in a long time but I had the same problem a few years ago.
Here is my suggestion:
Go and make an option to purchase two grade “A” mortgage notes “paper.” American Note Network is a good place to start. One should total $260k and the other for 70k. You shouldn’t have to pay more than 260k for both.
Then go to the bank that is holding the bad first mortgage on the property. Offer to trade them your good first mortgage for their bad first mortgage. You may have to talk to a few people but you should be able to convince them that trading with you is better than sitting on a foreclosed property in an expensive neighborhood that will most likely take a year or more to sell.
Then go to the lender holding the second. This lender should be much easier to convince since you’re trading a first position note for their bad second position note.
Next step, you have two options:
Find a buyer with a small 5 - 10% down payment and create a note for the balance and sell the note. The sell of the note + the down payment should be enough to cover buying the mortgages and give you 10 - 20k at closing.
Call every realator in town and tell them you have a property to sell at 20% below market and do they have any fast cash buyers. This will not make you as much money but it should dispose of the property pretty fast.
Banks do not like foreclosures and they do not like bad loans. Use this to your advantage.
As JPiper said, this is not the best deal the world, but if you have to do it you can. There is money to be made in almost any deal. The trick is finding what everyone needs and giving it to them.
and that is a straight option, for $10, like someone else suggested. Then, call mortgage brokers in the area and Realtors and offer to give them a referal fee.
Explain that you have this Executive type home, and need a buyer who has the income to cover the payments, and at least 10% down, or $30k.
Then, just take the house “Subject to” and sell it that way. Use the $30k or whatever you can get, and make up the arrears. The difference goes into your pocket.
I have NEVER done this, and don;t know IF it will work, but what the heck, for $10.00, I’d try it.
You can make a quick few thousand for the effort.
Just make sure you get the buyers that can afford this price range, but for whatever reason do not have the total funds needed to buy conventionally.
Getting a home like this for $30k down is a great deal.
They can always refi later to reduce that payment.
Just my $.02,
Jim IL
P.S., also, after you secure the short term option (30-60 days), as well as calling RE agents and mortgage brokers, post this on bulletin boards at corporate headquaters and such in the area. Go to the places where these sort of people work.
Seek out the higher income “buyers” and present them a DEAL.
They may come running.
also, run an ad in the paper!
Executive home
LOW DOWN
Immediate occupancy
xxx-xxxx
Run it a week or two or for the entire option period.
As Ron Legrand says about Options, you have NO risk.
Where’s the deal? No equity, lousy loans, delinquent.
The only possible deal here is to negotiate a purchase of the existing second at a significant discount (next to nothing), freeing up some equity and making a deal possible. In the absence of that I wouldn’t waste my time.
At the convention Ron Legrand had an actual example of a house exactly like this. He had her deed the property to him, took it over subject to the existing loans. His contract was an L/O I think type we he basically said that he would buy the house for the balance of the loans at the time he excersises. I think he bought it on a 1 year lease/option with 27 rights to renew.
His Tenant/Buyer had 100,000 for option money. It blew me away. The thing I learned here was that there are people out their that have money and are in a situation where they need a little time. Maybe they have money tied up in investments that mature soon. Who knows? Just don’t put your tenant buyers in a box.
Think outside the box you put yourself in. Maybe you don;t have 100,000 to put down, but somebody might.
I would have the lady check into reinstatement of her loans, tie it up with some kind of contract. Say for 30 days or so, and market the crap out of it.
Mansion Dream Home Rent-to-Own
Easy qualifying
$4500/month
Lock in todays value!
Posted by Flex (TX) on April 16, 1999 at 20:09:33:
Try not to feel to overwhelmed. (We just started a few months back.) My wife and I just came across 3 similar situations! Our houses are only in the $85-$95K ranges. Two are in default; the other is about to fall into bankruptcy court.
We have learned quite a bit in the last week. Someone suggested that we tie up the property by having the owner deed the house subject to mortgage. This gives you 30-60 days to obtain financing or flipping the property.
Although the price can appear scary, the payments in arrears are. I believe this has to be addressed by the homeowner. (She needs to check with the lender to see what it takes to reinstate the mortgage.) After getting all the facts at your mtg, you can look at all your options.
BUT…the most important thing we have learned is TO KNOW WHAT YOUR EXIT STRATEGY IS. If you have no idea on what you’re going to do with this prop once you get it, don’t.
If you want more details on how we’re attempting to handle our 3 problems/opportunities, please feel free to email me.
Posted by Stacy (AZ) on April 16, 1999 at 20:04:08:
No, I’m not a wise one, but here’s my take anyway:
YIKES!
I just don’t see how you could make a spread for a L/O or Land Contract when the payments are that high, and the equity is virtually non-existent…especially when she’s so far behind. I don’t think you could get enough option consideration from a new tenant/owner to cover the $15K to stop the foreclosure. I guess it would be possible to attempt to sell on Land Contract with $25K down, or more, but the monthly payments would seem to be pretty outlandish compared to the property value to make a decent spread.
I think I would go talk to her and ask if I could go for a straight 60 day option, for $10 consideration. And then I wouldn’t put a lot of effort into marketing it. I would hope for lightening to strike in the form of a new buyer with lots of cash.
I doubt if these payments are “normal” for the area.
Chances are high in my opinion that the second is at a rate of 14%+ if the amortization is 15 years. IF the first mortgage includes taxes and insurance this loan is most likely at 10% assuming a 30 year amortization, possibly 9% if taxes and insurance are close to $10K per year?.a tax rate that would be higher than most I have seen, including California. It’s possible that the first is a 15 year loan?which would account for the high payments. Obviously this is something to check though.
Be that as it may, in another 13 days this loan will be in arrears in the amount of $20K with more interest and penalties. Since foreclosure is about to be filed we can add another $2-3K in all probability at any time.
You’re right about one thing. If you tie this up with an option, you can keep anything over $20K to $22K depending on whether a foreclosure action is filed soon. Personally I wouldn’t bother doing it unless I had the time and nothing else to do, and the seller understood that my failure would result in the loss of their house. What you’re attempting to do is sell a house at 10% above market, at above market payments, to a financially more sophisticated buyer with $30K cash?.a proposition that looks tough to me for such a limited payoff.
This deal changes if you’re able to negotiate a reduced payoff on the 2nd?.who is currently in at 100% LTV. That would be the road I would take personally.
Re: Pretty houses work to! - Posted by Jim Beavens
Posted by Jim Beavens on April 16, 1999 at 22:35:52:
Actually, I think you’re quite a bit ways off on that example. He used an example of a $650,000 house that had a $500,000 morgage on it. He said the student that did this asked the lady if she would sell it for what she owed on it. She agreed, so he bought it for $500,000 subject to the existing loan. He then turned around and sold it on a wrap for something like $700,000 with a $50,000 or $100,000 down payment (don’t remember how much). The point was that there was a ton of equity that the seller was willing to just walk away from. I don’t think that applies in this situation.
Frankly, I just don’t see how lease-options can work on really expensive houses like this. Getting $1,000 a month rent on a $100,000 house isn’t terribly hard, but when you go up to $200,000 (with twice the payment amount), the rent only goes up to $1,500 (if you’re lucky). This $300,000 house probably won’t rent for much more than $2,000/month. I like an idea that Joe Kaiser threw out in his “stuffing envelopes” message board for expensive houses like these. Find somebody who is willing to do a long-term (5 year) lease-option with their big expensive house at market rents (say $2,000/month for the above $300,000 house) and then sell on a land contract with a 5-year balloon. The spread in the monthly payments is enormous. However Bronchick has said that selling on a land contract when all you have is an option is a legal gray area, so don’t jump into this without consulting an attorney. Joe applied this to a house with acreage on his message board, which has the same problem. The little dinky house rented for only $450 a month, but the acre of land was worth $125,000.
I’m curious if anybody else has novel ways of dealing with luxury homes like this. So far all the good deals I’ve heard with homes like this involved the seller having a ton of equity that they were willing to either give up or defer until you exercise your option.
Yes I would like to email you and pick your brain that you are filling with knowledge. My e-mail is Robjan@worldnet.att.net. Please email me so I can get your email address. Thanks for your input.
Thanks for your input. I will show these suggestion to my husband and let him worry about it,. He said you do the leg work, I’ll do the talking so… lets get talkin hon. Thanks
Re: “Resident Bene. Contribution” - Posted by Bill Gatten
Posted by Bill Gatten on April 20, 1999 at 14:04:08:
Part of it is Recurring Closing Costs, and part is Non-Recurring Closing Costs. The non-recurring portion is added to the “Resident Beneficiary Contribution,” to be returned to him/her from proceeds of sale (or re-fi of the property) at the trust’s termination. Non-Resident and Resident Beneficiay Contribtions are always (usually?) scheduled for repayment to the respective parties prior to distribution of Net Proceeds.
You are right about the example. I was mainly pulling out the subject to, option, and large down the people had. Just trying to get RobJan to change the way they think. The same way I did when I heard Ron speak.
The experts have demonstrated, as they always do, there is “Profit behind every Problem” if you look hard enough.
I am going through John Behle’s course now, he specializes in these kind of situations, the ones others wont touch. I think, and may be corrected, that he would approach it in a manner similar to what the CPA suggested.
My main point Jim is that we should think outside the box. I have struggled with that. You look at a hundred $100,000 homes and all of a sudden a $500,000 one comes by. It’s almost as if you can’t believe this stuff works on them. Knock off a couple of zeros, it does work.
Deal #1(San Antonio): Bankruptcy FMV-$85K Loan Balance-$67K 3 mos behind. The HO’s attorney called my wife (Jamie M Perez - TX) & partner today and told her to make an “Subject to mortgage” offer, meaning if we can’t get the necessary finding, the deal’s off. This looks to be the best bet.
Exit strategy: Make an offer and attempt to flip; we may try to seller-finance and sell the note at a discount.
Deal #2(Atlanta area): Pre-foreclosure FMV-$90K Loan Balance $49K 8 months behind. We have contacted several hard money lenders to see if they can refinance him if he presents a signed l/o agreement. If we can find anyone, this is best for us. Another option is to do the same as above in Deal #1.
Exit strategy: Depends on what we can develop before the sheriff’s sale in the 1st week of May.
Deal #3(San Antonio): In Default FMV-$95K Loan Balance-$75K 8 months behind. Lender will reinstate loan with $10K payment and will reduce balance by $10K. The H/O died and his sister is the estate’s executrix. The estate ran out of money and let the loan go into default. This house was listed with 2 different realtors over the past 2 years; too bad, we didn’t find this sooner.
We’re trying to see if we can help refinance and reinstate the loan. The lender is willing to work with her. We seem to have a little time here.
Exit strategy: We’re going to wait a few more days until we find a little more info from investors/lenders. Then, we decide what to do.
One thing we have learned in our years in our other business (and we did learn the very, very hard way) and has been reinforced by Ron LeGrand: 1)Know how you’re getting out 2)Minimize your risk; if you’re uncomfortable, don’t do it.
Hope this helps someone. (If there are you investors who think they can help, I’m all ears.)
